FHA vs Conventional or both?

Question

Hey everyone! Day2. Post 2. I need some more advice. So far everyone has been super helpful. I found out today that I will be able to draw from my employee stock program in about 90-180 days. Funds should be between 20-40k. I'm just wondering If it is possible to go with an FHA loan on a multi-family owner-occupy and also do a conventional loan for a multi-family and rent those units? Just trying to figure out options for a first time buyer and investor. Any and all advice is much appreciated.

Thank you!

Julian Sibley · Answer

@Zach Zabel Welcome! There's a lot of information on the forums, in addition to the BP podcasts. If you're looking to get into REI I would highly recommend you start attending local meetups in your area to network with other investors.

The short answer to your question is yes, but the longer answer is that it doesn't sound like you will have enough capital to do both in a short period of time.

Like previously mentioned, FHA is a low down payment (3.5%) up to 4 units but it has to be owner occupied. You will start to run into red flags if you are trying to purchase more than one "Primary residence" in a 12 month period (atleast from the same lender, but I won't go down that rabbit hole). So your second purchase would be an "investment" unless you wait 12 months after your first purchase.

If your capital allows, I'd recommend getting a 4-plex using a fha loan. Then use the BRRRR strategy. You will have to season it 6 months before you can cash-out refinance using the higher ARV, but if you add enough value through rehab you could cash-out refinance it into a conventional loan (drop your mortgage insurance payment) and hopefully recoup your down payment + profit while you search for your investment purchase. Otherwise sit on your cash until you can make your next owner occupied purchase.

I tried to get my wife bought in on house hacking 4-plexes but she refuses to share walls with tenants. Good luck with your first purchase!

@John Jackson Adams I think you missed the part where he mentioned he wants a multi-unit. WSHFC's programs are designed for owner occupied single family residences.

http://wshfc.org/sf/04propertyrequirementsHA.pdf

John Jackson Adams · Answer

Welcome to the BP community Zach and that's a great question. I'm wondering if you're talking about purchasing 2 properties, one with FHA owner occupied and one conventional? To answer you question as best I could, it is possible to do both but the challenge from lender & underwriting standpoint will be your DTI (debt to income) ratio. In simpler terms, your income has to be able to support the payments of both properties.

You might also be talking about refinancing to conventional down the road which is a great option as well. Personally, I would purchase the property using WA State Bond "0% down" FHA program and use those employee stock draws toward closing costs and pay for the upfront mortgage insurance premium. That way MIP does not have to be paid on a monthly business and will help your property cashflow.

In this market, you don't want to ask the seller to pay closing costs but instead you want to make your offer as strong as possible. There's even an on time close guarantee I can throw in there that will offer both the buyer and seller up to $1,000.00 if the loan does not close on time. That's one way along with paying your own closing cost that will help strengthen your offer.

You have lots of advantages being in the beautiful state of WA as well as being a first time home buyer, I'm excited for you!

Steve DellaPelle · Answer

The FHA would need to be OO. The conventional loan will be considered an Investment Property and thus will have a higher interest rate and also would require a higher down payment. There shouldn't be a problem obtaining two loans as long as the financial numbers check out.

Best of luck!

Aaron Nelson · Answer

Hi @Zach Zabel! Welcome to BP! You can generally use an FHA loan to purchase a property that is 1-4 units (i.e. SFR to 4-Plex); as long as you are planning to live in one of the units, you can put as little as 3.5% down for the downpayment. Note that low down payments are  subject to MIP, a type of mortgage insurance. This means you will likely want to refi down the road once you’ve built up enough equity.

I own investment properties and work in Pierce county/Tacoma so let me know if you want to chat sometime. I can also connect you with an awesome mortgage lender who does FHA loans if you are interested. Just send me a PM and we can go from there!

Antoine Martel · Answer

How many units is the multifamily. You can only do FHA if a property is under 4 units.

Zach Zabel · Answer

thank you guys for all the help. I definitely have the ball rolling now. Gotta make it happen now!

Zach Zabel · Answer

Excellent advice! Thank you everyone! I can't wait to start making this happen!

Zach Zabel · Answer

I am mainly looking at duplexes at the moment. Lots in my area.

FHA vs Conventional or both?

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